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David Brown

Think Cost Should Determine Your Pricing? Think Again, Writes David Brown

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The selling price, and ultimately the margin and profit you make from a piece of jewelry, can be a cause of angst for many jewelers. Bottom line — a customer will rarely pay more for an item than they want to.

We have been programmed historically to use a cost-plus basis for determining selling price, and certainly this provides a good benchmark or starting point to determine price. However, cost alone is insufficient in deciding the true value of an item. Firstly, cost is based on inputs — the price of the stone or metal that makes up a ring, for example, and valuations support this basis. However, as all of you who have had an old inventory item sit around for four years will testify, the value to the customer doesn’t always equal the inputs to the construction. Two rings of similar cost to manufacture can sell slower or faster than each other depending on the customer’s perception of their value to them. That makes it difficult to justify them being the same price.

Likewise, two customers won’t value an item the same regardless of the inputs that contribute to the cost. Other factors like their priorities, personal tastes, economic restrictions, and cultural inputs will all affect the amount they would be willing to pay. If you don’t believe me, show 10 customers an unticketed ring and have them tell you what they think it is worth — the variations will be interesting.

So ultimately, the selling price of an item will be determined by factors other than the costs of its manufacturer or purchase price. I am a fan of repricing items up that sell well to determine the best price they should be set at. You have to price them down when they aren’t good sellers, so the opposite needs to also apply. Your customers don’t care about your cost price on an ugly ring that you have to discount to 20 percent below purchase price — likewise, cost isn’t a factor in their decision-making for a fast seller that you have to wait six weeks for between orders.

If you do use a cost-plus approach to pricing, then remember that cost should also consider replacement cost, not just actual cost. If you sell that item today, what is the cost of replacing it now with something equal or similar? Too often, with changes in the cost of raw materials, storeowners are caught short by their pricing. This can reduce the profit you thought you were making on something, especially if the replacement item proves harder to sell.

As mentioned, pricing is an individual choice, but it pays to consider more than just the cost of purchasing inventory when making the decision on selling price. 

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David Brown is president of the Edge Retail Academy, a force in jewelry industry business consulting, sell-through data and vendor solutions. David and his team are dedicated to providing business owners with information and strategies to improve sales and profits. Reach him at david@edgeretailacademy.com

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David Brown

How Eating Right Is Like Managing Your Inventory

The right items and advance planning can make your business fit.

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KEEPING YOUR INVENTORY in order is a little like painting the Eiffel Tower … you no sooner get to one end than you feel you have to repeat the process all over again!

Inventory is a dynamic part of your business. It is constantly in flux, and as such, difficult to manage. However, having a good system will go a long way toward helping you keep your inventory under control.

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There are two aspects to your inventory: what you buy and what you keep. It’s the buying part that contributes most to what is left after the customers don’t want it, so let’s start with that first.

Food dieting consists of what you eat and how much of it you consume. Buying inventory is the same. There is what you buy, and then there is how much you are spending. If your diet consists of eating healthy greens, vegetables and fresh fruits, then part of your food diet will take care of itself. The same is true of ordering fast sellers — make these the mainstay of your inventory diet, and you will take care of a good 70-80 percent of the inventory you will need to consume. That leaves the remainder — the combination of poor choices and overconsumption that can cause the most problems (I’m still talking inventory here!).

In the same way that meal planning can reduce overeating or making poor food choices, planning your purchasing will work the same way. We recommend an open-to-buy budget as the most effective way to do this. An open-to-buy will balance what you are selling with what you are buying. Think of it like a calorie checker that enables you to eat once you have burned enough fat. The open-to-buy will track the money released from outgoing inventory that is then freed up to spend on new product and let you know how much this is so you don’t over-buy. This will help you to keep your inventory situation from becoming any more bloated.

So what about the surplus inventory that is aged and isn’t going anywhere now? This is the same as the few extra pounds that might be sitting around your hips — it’s one thing to stop the increase, but it’s another thing entirely to get rid of that unwanted fat.

Much like systemizing your buying with an open-to-buy program, you can systemize the aged inventory with a series of means to move it on. This can consist of a variety of options that work well for you on a regular basis to keep that aged inventory from clogging up your store arteries. I’ll talk more about these options in the next article.

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David Brown

6 Solutions to Short-Term Cash Flow Problems

Problems can arise if you aren’t vigilant about how your receipts and payments are tracking.

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MANAGING CASH FLOW can be an urgent issue for any business. Problems can arise if you aren’t vigilant to how your receipts and payments are tracking. Sometimes, you need a solution that can give you quick and easy cash to keep you going. Here are some of the best options you should consider.

1. Get short-term financing. If you feel the situation can’t be resolved without external help, then short-term financing, such as a line of credit, can see you through. It has the added advantage of being able to be repaid when the funds are no longer needed, keeping costs to a minimum.

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2. Long-term financing. This can be a longer process and will generally involve putting up assets as security for a more permanent arrangement. Although this may result in a larger sum of funding, be careful: your assets and debt should match in terms of time frame. Using long-term debt for short-term cash flow needs can be a recipe for disaster (as can short-term debt for long-term asset purchasing). Long-term debt should be used primarily to purchase assets that provide long-term returns to the business, not as a means of “tiding you over” until things get better. You need cash flow every day, but you only have so many assets you can draw against.

3. Speed up recovery of receivables. Although retail is normally a cash business, there may be some areas in which you run an account (e.g., insurance companies) or other parties with whom you have a good relationship. In these circumstances, it’s important to manage the repayment process. A discount can be an effective incentive for this.

4. Get a larger deposit. Your customers are often your best means of short-term funding. Increasing your deposit on custom jobs from 20 percent to 50 percent can add several thousand dollars permanently to your bank float.

5. Manage your repairs. Follow up consistently with repairs that aren’t collected. This is dead money sitting that is easily forgotten about because the items don’t belong to the store. You have an investment in those items you need to recoup.

6. Sell surplus assets. Inventory is often the first choice for doing this, but is there other equipment or assets you no longer need? If you’ve ever run a garage sale, you’ll know how much cash you can round up from extra stuff you have — the same may be true of business assets such as old desks, tools and display cabinets you no longer use. Don’t assume they are worthless just because you will recoup much less than what you paid for them.

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David Brown

4 Ideas to Liquidate Your Extra Post-Holiday Inventory

Extra inventory left over from December could hurt your 2019 sales.

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THE BUSY DECEMBER SEASON is now behind you — it’s time to relax a little and recover from the most hectic time of the year … or is it?
The start of a new financial year can still carry something of a hangover from the December festivities you’ve just enjoyed, and foremost in this is the issue of your surplus inventory.

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Unfortunately, this product can be a blockage to your ability to refresh with new purchases as it ties up cash flow that can be reinvested. Here are a few steps to follow in order to keep these items moving:

1. Determine how much of it there is. You can do this in two ways. First, print a stock list of items that you have more than one of. Second, print a stock list of all items over 6-9 months old. These two reports will show you the total dollar value of what is blocking your reorders.

2. Complete a physical stock take. Are these reports correct? Chances are that during the busy December period, there have been some errors in inputting, so you need to reconcile the value of the report with what you have on hand. In particular, check spare drawers for double-ups of your fast sellers.

3. Determine how you will liquidate this product. Is it time for a storewide sale? Can you offer a selection of these items in a “specials” showcase? What about your mailing list — could you make an offer to your best customers of an exclusive January deal on some of these items? Could you incentivize staff to move it on? There are a myriad of ways to promote shifting these items to your customers.

4. Don’t forget vendors and other store owners. Check with vendors in case they may want to replenish their own inventory. Often, they may be closed for manufacturing or receiving their overseas shipments during the early January window and may be happy to take back some items to fulfill other orders. Also, many of your fellow group members may be looking to re-stock some of these items, especially if they were part of a group promotion. Why not be their vendor for your own surplus product?

Fortunately, jewelry isn’t perishable, and you still have many opportunities to sell these items, but don’t allow them to sit around unattended. It can take a conscious effort to move these slower items on, so the sooner you start, the sooner you can get this money back into the bank.

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